529 vs UTMA/UGMA Calculator: Taxes and Financial Aid

Use this calculator to compare saving for a child in a 529 college savings plan with saving the same money in a UTMA or UGMA custodial account. Enter your child's age, when college starts, your contributions and expected return, how much of the return is paid out as dividends or interest, your federal tax bracket, and your state. The tool projects both accounts month by month, applies the kiddie tax to the custodial account every year, taxes the gains when the account is sold for college, values a New York or Illinois state deduction, and estimates the financial aid difference.

Short answer: for money you are confident will go to education, a 529 usually wins. Its growth is tax-free for qualified expenses, many states give a deduction for contributions, and the 2026–27 FAFSA formula counts a parent-owned 529 at no more than 5.64% of its value versus 20% for a custodial account. A UTMA makes sense when you want the money available for anything that benefits the child and you are comfortable with the child taking control at 18 or 21.

This calculator is for informational purposes only. It produces estimates from simplified assumptions (a constant return, today's tax thresholds, and the current aid formula), and it does not predict the aid any particular college will offer.

For the full comparison of the two account types, read 529 vs UTMA/UGMA: which is better for college savings.

How the calculator models each account

Both accounts receive the same contributions and earn the same total return. The difference is tax.

• 529 plan: nothing is taxed while the money is invested, and nothing is taxed when it is spent on qualified education expenses. If you live in New York or Illinois, the calculator also counts the value of the state deduction on each year's contributions at the state rate you enter.
• UTMA/UGMA: each year, the dividends or interest the account pays (the yield you enter) are the child's unearned income and go through the kiddie tax. The tax is paid out of that cash, so less is reinvested. The rest of the return is unrealized growth, which is taxed when the account is sold. The calculator assumes the account is sold in equal parts over four college years, with the gains taxed as long-term capital gains under the kiddie tax.

Choosing "Conservative (Bonds/CDs)" treats the yield as interest, taxed at ordinary rates. The other strategies treat it as qualified dividends, taxed at capital gains rates.

How the kiddie tax works in 2026

The kiddie tax applies to a child's unearned income (interest, dividends, capital gains) every year the child is under 18 at year-end, or is 18, or a full-time student aged 19 to 23, with earned income no more than half of their own support. For 2026, Rev. Proc. 2025-32 sets the amount at $1,350, which creates three tiers:

Two things the calculator gets right that simple estimates often miss:

• The thresholds apply to each year's income, not to total growth. A UTMA that grows to $150,000 over 13 years does not owe kiddie tax on $150,000; it owes tax each year only on that year's dividends, interest and realized gains.
• Character is preserved. Qualified dividends above $2,700 are taxed at the parent's capital gains rate (15% for most families), not at the parent's 22% or 24% bracket.

Example: a child receives $10,000 of qualified dividends and long-term gains in 2026 and the parents are in the 24% bracket. The first $1,350 is tax-free, the next $1,350 is taxed at the child's 0% capital gains rate, and $7,300 is taxed at the parents' 15% rate: $1,095. If the same $4,000 came from bond interest instead, the tax would be $135 (10% of $1,350) plus $312 (24% of $1,300) = $447.

The tax is filed on Form 8615 with the child's return. In some cases parents can report the child's interest and dividends on their own return with Form 8814 instead.

Worked example: $10,000 plus $500 a month from age 5 to 18

With the calculator's defaults (7% return, 2% qualified-dividend yield, parents in the 22% bracket), both accounts receive $88,000 of contributions over 13 years.

The yearly kiddie tax is tiny: dividends stay below $2,700 until the last year, when they reach about $2,878. The real cost arrives when the account is sold. Each year's $11,461 share of the gain uses up the $2,700 of sheltered and child-rate room, and the rest is taxed at the parents' 15% capital gains rate.

Income-heavy investments change the picture. If the same UTMA holds bonds yielding 4% and the parents are in the 32% bracket, annual interest passes $5,000 by age 16 and the account pays about $4,106 of kiddie tax over the 13 years, ending with roughly $7,300 less after tax than the 529 before any financial aid effect.

How each account counts for financial aid

Since the 2024–25 award year the FAFSA computes a Student Aid Index (SAI) instead of an Expected Family Contribution. In the 2026–27 SAI guide:

• Parent assets, including a 529 owned by a parent for a dependent student, have no asset protection allowance (Table A4 shows $0 at every age). Net worth is multiplied by a 12% conversion rate and added to the parents' available income, which is assessed at 22% to 47%. The most a parent-owned 529 can add to the SAI is 12% × 47% = 5.64% of its value.
• Student assets, including UTMA and UGMA accounts, are assessed at a flat 20%.

The calculator applies those rates to the projected balances at the start of college. In the example the UTMA adds $30,431 to the SAI (20% of $152,155) while the 529 adds at most $8,583 (5.64% of $152,182), a $21,848 difference for the first year. Because the balance is spent down over four years, the calculator multiplies that by 2.5 (1 + 0.75 + 0.5 + 0.25) for a four-year estimate of about $54,600.

That number matters only if your family would otherwise qualify for need-based aid. If you select "Unlikely to qualify," the calculator leaves it out of the recommendation. A higher SAI does not reduce merit scholarships, and colleges that use the CSS Profile apply their own formulas.

State tax deductions for 529 contributions

There is no federal deduction for 529 contributions, but many states offer one for contributions to their own plan. The calculator values the two it can confirm on official state sites:

For each year it deducts the smaller of that year's contributions or the limit and multiplies by your state rate. With $16,000 contributed in the first year and $6,000 a year after that, a married New York couple at 5.5% would deduct $10,000 in year one and $6,000 in each later year.

Pennsylvania, Ohio, Georgia and Michigan also give a state tax break for 529 contributions, but the calculator does not model them; check your state revenue department for the current limit. California has no deduction, and Texas and Florida have no state income tax. States that offer a deduction generally add it back to income if you later take a non-qualified withdrawal.

Flexibility: what if the money is not used for college?

The calculator's "what if" section compares the two accounts if your child skips college.

• 529: a non-qualified withdrawal is taxed only on its earnings, at the recipient's ordinary rate, plus a 10% additional tax on those earnings (IRC §529(c)). Contributions come back tax-free. In the example, $64,182 of earnings taxed at 22% + 10% leaves $131,644 out of $152,182, if the parent owner takes the money. The 10% does not apply to withdrawals up to the amount of a tax-free scholarship, though the earnings are still taxed.
• Other 529 exits: change the beneficiary to a sibling, cousin, or yourself, or roll up to $35,000 over the beneficiary's lifetime into their Roth IRA, subject to the annual IRA limit, if the 529 has been open at least 15 years.
• UTMA: the money belongs to the child, so it is available for anything that benefits them, with no extra tax beyond the kiddie tax and capital gains already counted.

529s have also become more flexible for younger students. For distributions after 2025, up to $20,000 a year per student can pay elementary and secondary school costs under §529(e)(3)(A), and qualifying K-12 expenses now include curriculum materials, books and online educational materials as well as tuition.

Control: the risk the numbers do not show

A UTMA or UGMA is an irrevocable gift. The custodian invests and spends it for the child's benefit, but it cannot be used for a parent's own legal support obligations, and it transfers to the child at the age set by state law, usually 18 or 21. Some states let the person making the gift choose a later age. The calculator flags accounts above $50,000 and $100,000 because that is a lot of money for a young adult to receive outright.

A 529 stays under the account owner's control. The beneficiary never has a right to the money, and the owner can change the beneficiary or take it back (paying tax and the 10% on earnings).

Gifting into either account

Both accounts are funded with gifts. In 2026 each person can give $19,000 per recipient without filing a gift tax return. A 529 also allows a five-year election, made on Form 709, that treats a lump sum up to $95,000 per beneficiary as spread over five years. The gift tax calculator shows when a return is needed.

What the calculator does not include

• Future changes to the kiddie tax threshold, tax brackets or aid formula. Today's figures are used for every year.
• Grandparent-owned 529s, Coverdell accounts and education tax credits. Coordinating 529 withdrawals with the American opportunity credit is covered in the education tax credits calculator.
• Investment fees, which vary widely between 529 plans and brokerages.

For how custodial accounts and 529s compare in the financial aid process, including worked examples, see the financial aid impact of 529s versus custodial accounts.